All Forum Posts by: Nathan H.

@Francisco Gomez

From the little that I know about this deal, I like it. Sometimes you run into one off properties like this that are hard to comp. My thoughts on that is, it doesn’t matter. What matters is what the place is worth to you. 

The reality is  that appraisals usually come in around the contract price for a new purchase. Also, intergenerational living/house hacking is on the rise, so this house should command a premium into the future. 

Also, remember to factor in the tax advantages of depreciation and expenses for portions of the property that you are using as an investment. I think you’d be able to justify a higher % used for investment due to those 2 studios than you otherwise would. 

My advice is get this place under contract, then figure out if it’s worth it. You can always get out if your due diligence doesn’t pan out. However, if someone else gets in under contract, you no longer have the option. 

Keep us updated on how this goes. I’m pumped for you! 

Hi all,

I was working with a client yesterday in analyzing how the CARES act may effect his year end planning. As a result, I want to share this powerful deduction incase it applies to anyone here. It could have a major impact on year end tax planning. It could also be an effective way to free up/generate some cash!

QIP (qualified improvement property) defined by IRS code section168(e)(6) as “any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.”

The intent of the TCJA was to treat QIP as 15 year property. Due to administrative error more or less, this didn’t happen. The CARES act restored it to the original intent of the TCJA. 

To put it in basic terms: If you spent money on QIP, after 9/27/2017 and placed it in service after 2017, as a owner or lessee of commercial real estate, you can likely take 100% bonus depreciation on it. If it was done in 2018 or 2019, you can amend those returns and potentially get a refund. If taking bonus doesn’t make sense, keep in mind that the recovery period will be 15 years for most tax payers, adding a big tax advantage compared to previous rules, where QIP was 39 year property, not eligible for bonus.

Like anything else with the IRS there is nuance and this can get technical, so keep in mind that I did simplify things. Although, for the majority of tax payers, with QIP expenditures, this is materially how it would apply. As always, before you rely on this information, consult your tax professional! 

@Account Closed

I recently closed on a small MHP, a size that most individual investors could take on without raising capital. 

I’d consider myself a novice investor (it has been my primary source of income for about 7 years), and this the best asset I’ve ever owned. 

I don’t want to waste your time with a bunch of info about my experience thus far, but if you’re still interested in the asset class, let me know and I’ll answer each of your points from the original post directly. There is a lot of nuance with MHPs. 

@Dave Foster

Thanks for the tip Dave! Seems like the education never ends with exchanges and their relative complexity. It’s certainly worth the effort though

@Christopher H.

Thanks for the kind words! 

Take $150,000 x your marginal tax rate = additional upside

(assuming real estate professional status and enough ordinary income)

Super important to understand how the tax implications impact a deal, especially for high earners. like you said, it’s a good way to “make” a deal rather than find one 

@Scott Wolf

Hey Scott. I’m a tax accountant for my day job, so my tax professional gave me the thumbs up on this one! Haha 

Hi BP Community!

I just want to share a strategy I used on a property I closed on yesterday. Please feel free to critique/ point out anything I'm not seeing:

I sold a rental property over the summer that I had a low basis in relative to the sale price (due to a low purchase price, rather than accumulated depreciation). I decided to 1031 the proceeds. 

I closed on the replacement property yesterday: A 13 unit MHP. 7 units are park owned, 3 are tenant owned, 3 are on rent to own agreements. 

Trailers are considered personal property, land and land improvements are real property. Real property can be the replacement property in a 1031 exchange, personal can not. In reality, I paid one price for everything (trailers, land and land improvements), but for purposes of the 1031 exchange I had to separate it out, 150k for trailers and 310k for land and improvments. 

What has me pumped is that I can claim 100% bonus depreciation on the trailers and wipe out a ton of ordinary income with the tax loss. The 1031 is still legit since it was for the purchase of the land and land improvements. Also, the purchase price assigned to the land will have a carryover basis much closer to the purchase price than it would, had I exchanged into the full purchase price of the MHP, or an alternative type of real estate with a similar purchase price. AND the land improvements are 15 year property, allowing for more aggressive depreciation. I get it that a decent portion of the 310k will go to land value which isn't depreciable, but I'll have much more depreciation and much faster depreciation than I would if the replacement property was something other than a MHP. 

Let me know you thoughts. Thanks!

@Jay Styles

Hi Jay. $15,000 is plenty of money to get into real estate. You’d just need to bring something to the table other than cash. For example, being “boots in the ground” for a partner, earning some sweat equity, or getting into something high risk, high return. For example, you could absolutely find something in the mid-west, put 15k down, get a hard money lender and flip it using your self as labor. 15k is a position to aggressively grow your capital, a passive investment isn’t a viable option the way I see it. 

Your limitation is the markets and strategy you’ve identified, not the lack of capital. 

Admittedly I’m making some tall assumptions here. It’s just an uphill battle, staying in LA and investing in the markets you mentioned with 15k. Time to get creative!

@Stephanie Pieri

It is as simple as that. It sounds like this most likely won’t apply, but if you plan on pulling cash out via a cash out refi, you may run into headaches with conforming loans. If you have no plans to pull cash out, there’s no issues.